Introduction
Thailand has consistently attracted foreign investors looking for opportunities in Southeast Asia. However, the Foreign Business Act restricts foreign-owned companies from undertaking many business activities. These restrictions often lead to investors enquiring about Thai nominee shareholders. However, under the Foreign Business Act such shareholders are illegal in Thailand.
Key Points
- Nominee Shareholders are illegal in Thailand.
- Foreign-owned companies face ownership restrictions on many types of business activities
- Minority shareholders can maintain company control through preference shares, weighted voting rights, and contractual arrangements provided that they are nominees
Why do investors look to nominee shareholders in Thailand?
The interest in nominee shareholders stems from the restrictions placed on companies where foreign ownership exceeds 50% of the share capital and the resulting restrictions from the Foreign Business Act. These restrictions can significantly impede various business operations for foreign-owned enterprises in Thailand.
This is notably the case for most service activities unless a Foreign Business License or a BOI Licence with a Foreign Business Certificate can be obtained.
What is a nominee shareholder?
It is important to note that there is no legal definition of a nominee shareholder; however, from experience and precedence established through cases, we can generally describe a nominee shareholder as an individual who:
- Lacks genuine interest in the business.
- Has made no significant investment in the company.
- Lacks the financial means and skills to be a legitimate partner.
- Exists solely to facilitate foreign participation in restricted businesses.
For instance, appointing an unskilled Thai worker with a modest income as a majority shareholder in a company with substantial registered capital while simultaneously denying them voting and dividend rights would be considered as using a nominee shareholder.
While nominee shareholders seem a great option for investors, Thai law prohibits their use, specifically Section 36 of the Foreign Business Act.
Do investors need nominee shareholders to have control of a company?
Interestingly, the key consideration for this point is Ownership vs. Control. Whether a company is classed as Thai or foreign primarily depends on capital ownership rather than control. Foreign investors can maintain control of a company with minority shares (e.g., 49%) through preference shares and a shareholder agreement establishing the voting and dividend rights of the shareholders.
However, it is important to note that structuring a company this way cannot completely diminish the interests of the Thai shareholders.
How can I find nominee shareholders in Thailand?
In practice, if there is a risk of nominee shareholders and an officer at the Ministry of Commerce suspects this is the case, each shareholder will be summoned to the Ministry of Commerce for interrogation.
An example of things that may cause suspicion from the Ministry of Commerce includes a shareholder owning shares in many companies. The officer will be able to cross-check that particular shareholders income tax filings and determine whether they have the financial means that could support that level of investment and whether they are acting as a nominee shareholder or not.
What are the legal implications for using Nominee shareholders?
Using nominee shareholders in Thailand can lead to severe legal consequences. Those found guilty of using Thai nominee shareholders may incur fines and imprisonment. Section 36 of the Foreign Business Act states that ‘A Thai national or juristic person that assists a foreigner in avoiding the Foreign Business Act by means of holding shares as a nominee or being a nominal owner of the company shall be liable for a fine of 100,000 to 1,000,000 Baht and/ or imprisonment of up to three years’.
As of 2023, we have seen heightened scrutiny of Thai nominees, with a crackdown on companies using nominee shareholders nationwide. This is particularly evident in the Real Estate and Tourism sectors.
For more information about potential alternatives to the use of nominee shareholders, please take a look at our blog post here.
Our thoughts
The use of nominee shareholders is illegal in Thailand and unnecessary, with their use causing potential problems and issues later on. With a properly structured company, minority shareholders can ensure their control. Also, obtaining a BOI promotion or a Foreign Business Licence will allow foreign-owned companies to engage in restricted business activities in Thailand. Our team of experts can help you structure your company to protect your investment and ensure full compliance with all relevant laws.
